Will a Housing Market Collapse Push the US into Recession? I agree with this economic analysis of the national housing market.

We expect a housing recession to generate only moderately below-trend GDP growth for several reasons. First, only a small fraction of total mortgage borrowers are financially vulnerable, despite a major rise in the risk profile of recent mortgage borrowers. Second, interest rates have moved higher, but are not that high in absolute terms. Third, the labor markets remain tight, which should support income growth. Fourth, weaker housing demand should be partially volume-adjusting through a fall in housing starts and completions as the profit margins of builders drop. This slowdown in new supply is likely to mitigate the magnitude of downward pressures on housing prices. Fifth, the lagged positive wealth effect of past house price increases should initially offset part of the negative impact of a nationwide stall in house prices….

Our view is that the sector has begun a housing recession that may not bottom until the last half of 2007 and that the negative effect of the housing weakness is likely to be more intense in 2007 than in 2006 as the lagged benefit of past wealth increases slowly wear off. Housing-related employment has stalled but major declines have been postponed by the shift of labor to non-residential construction and the need to complete residential projects under construction. A more substantial fall in housing-related employment is likely in 2007.

Construction is a larger share of the Arizona economy than the national economy, so a slow down in construction employment will hit Arizona harder than the U.S. in general.

By the way, the answer to the question above is… no.